Bill would regulate middlemen who help set California drug prices

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One of the bills in the California legislature designed to address high prescription drug costs would take aim at the middlemen who negotiate pharmaceutical prices by bringing them under the state's regulatory purview.

Pharmacy benefit managers are the go-betweens who negotiate drug prices with manufacturers on behalf of health insurers. They also write the formularies that list which drugs are covered by a particular health plan.

AB 315, authored by Assemblyman Jim Wood (D-Healdsburg), would require pharmacy benefit managers to register and submit information about drug costs, rebates and fees to the state Department of Managed Health Care. It has passed the Senate and is now in the Assembly.

"I want to know that the client is actually getting what they’re paying for and at the end of the day that the consumer is actually recognizing a benefit from that," said Wood. "That’s really unclear at this point."

The Pharmaceutical Care Management Association, the trade group representing pharmacy benefit managers says the bill would impede their ability to negotiate lower prices, which would end up leading to higher drug costs. The Association says regulation would jeopardize trade secrets.

"It’s also counter-productive since employers, unions, and plans already determine what information they want disclosed before choosing from among different [pharmacy benefit managers], Association President and CEO Mark Merritt said via email. "A one-size-fits-all mandate would reduce payers’ choices and make things worse, not better, for consumers."

The California Department of Finance also opposes the bill, based on the costs associated with implementing new regulations. The finance department estimates the measure would cost the Department of Managed Care around $900,000 a year.

The bill is one of four moving through the legislature aimed at high drug prices. For Wood, SB 17, a bill that would impose transparency in manufacturer’s drug prices, goes hand-in-hand with his legislation.

"If these industries are doing everything on the up and up, they really have nothing to fear from these bills," said Wood. "These bills will just provide information and everybody will be happy, but the push-back has been really, really strong, and that makes me suspicious, quite frankly."